last word
High Tech PRICING
By Erinn Morgan
Today's shoppers are the subjects of microscopic scrutiny. This is a result of science getting involved in calculating the proper pricing for everything from eyewear to elbow macaroni.
In today's megastores, it's not unusual to carry thousands of items, many of which are inter-related in scope and effect on other product sales. But tracking how raising the price on products influences other sales—such as the price of eyeglasses impacting sales of lenses—has been nearly impossible. Until now.
CARD ME
Enter the shopper's discount card, which tracks everything customers purchase with one simple swipe. Toss this valuable information into the computer with formulas derived from physics and retailers can predict shopping behavior or even modify prices to cajole specific customers into buying, according to a recent article in USA Today. This trend could lead to a brave new world of customized pricing.
As a result, business software firms such as SAP AG, Oracle, and Zilliant are hawking equation-based models for setting store prices. Armed with a customer data, programmers develop formulas that manipulate retail prices depending on current sales, the likelihood of last-minute purchases, and other variables including everything from weather forecasts to competitors' prices.
Their programs reveal things such as customized supply and demand curves and how much of an item each customer will buy at a certain price. All of this leads retailers further down the path of individualized pricing.
For example, the USA Today article indicates that this is apparent when customers who are checking out at the register receive a coupon for money off their next purchase. For some this may be $3, for others it could be $10—the equations predict what it will take to get you to come back and make another purchase.
Many companies recognize the need for better ways to manage pricing, but others continue to limit their profits by using archaic pricing methods.
According to Zilliant, enhanced price differentiation and sales execution can help increase margins by 15 percent and more.
| WHO'S TAPPING tech? | A survey conducted by the Institute for International Research and Zilliant, a provider of strategic, data-driven pricing applications, showed strategic pricing was increasing in priority among U.S. businesses. This PriceX Conference poll surveyed people responsible for making pricing decisions at their companies. Some reported that they typically take the cost of a product and add margin on top of that price. Others simply match or better their competitors' offerings. 56% have a pricing strategy in place 44% have a dedicated pricing staff 35% consider pricing to be a top priority 61% use spreadsheets to determine price, not specialized pricing applications Another survey from the Professional Pricing Society shows the inclinations of its members: 30% price new products by mirroring their nearest competitors' prices 56% set prices for new products based on recovery of costs and a profit 18% performed customer research to determine the value of the product or service to potential customers 40% mimic the pricing of their off-line sales channels for online retailing 28% do not have any Internet strategy |
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